*1049 A voluntary contribution by a taxpayer to a corporation of which he and his family were sole shareholders, held a gift subject to gift tax, and, since the corporation and not each shareholder was the donee, there is only one $5,000 exclusion.
*121 The Commissioner determined a deficiency of $6,257.50 in petitioner's gift tax for 1935, by treating as gifts transfers to a corporation of which he and members of his family were sole shareholders.
FINDINGS OF FACT.
Petitioner, a resident of Louisville, Kentucky, on December 7, 1932, organized the Creggan Co. as a Kentucky corporation, with an authorized capital stock of 100 shares without par value. On December 30, 1932, he transferred to the corporation common stocks of five corporations which had an aggregate fair market value of $33,578.52 and had cost him $25,637.50. In consideration therefor the corporation issued its authorized 100 shares of capital stock to him and the following day he transferred 20 shares to his wife, Ida Webb Thompson; 10 shares to himself as trustee for his daughter, *1050 Margaret Webb; 10 shares for his daughter, Ida Maney; and 10 shares for his son, James. On February 14, 1933, his wife transferred to him as trustee 10 of her shares for his son, Frank B., Jr. Since then petitioner has held 50 shares in his own right and 40 shares as trustee for his children, and his wife has held 10 shares. The corporation has not issued any more stock.
In 1933 petitioner transferred to the corporation $12,029.64 cash; in 1934, $27,588.18; and in 1935, securities and cash of an aggregate fair market value of $153,162.63. On its income tax return for 1933 the corporation reported a credit of $12,029.64 to surplus, representing gifts; for 1934, a credit of $26,871.86, representing gifts; and for 1935, a credit of $129,716.01, representing gifts.
On each of its returns for 1933, 1934, and 1935 the corporation noted that the shareholders were including in their individual income their distributive shares of the corporation's adjusted income.
For 1932 petitioner reported on his gift tax return total gifts of $5,127.50, representing the value of the 20 shares given to his wife, and deducted therefrom an exclusion of $5,000 and a specific exemption, *122 *1051 $127.50. For 1933 he reported total gifts of $12,029.64, representing the cash transferred to the corporation, but computed no net gifts because "the amount of the gift for each of the other stockholders * * * is not in excess of the $5,000 allowed." For 1934 he reported total gifts of $27,588.18, representing the cash transferred to the corporation, but computed no net gifts for the same reason. For 1935 he reported total gifts of $76,581.32, representing one-half of the value of cash and securities transferred to the corporation, and deducted five exclusions, aggregating $25,000, and a specific exemption of $49,872.50 in computing net gifts of $1,708.82.
OPINION.
STERNHAGEN: In determining the deficiency, the Commissioner ruled that the amounts contributed by the petitioner to the corporation in the years 1933, 1934, and 1935 were gifts, taxable in the aggregate as such, and that there was but one exclusion of $5,000 for each year. The petitioner assails this determination, primarily contending that the transfers to the corporation were not gifts but were contributions of paid-in surplus; and, in the alternative, if they are to be characterized as gifts, such characterization*1052 can only be applied to the interest which by his contribution the petitioner gave to the shareholders. By this latter conception petitioner would leap over the legal existence and ownership of the corporation; treat his transfer as if in fact it had been made to the individuals holding the corporation shares, of whom he himself was the largest; regard his ownership of half the shares of the corporation as a continuing half ownership of the amounts contributed to it and the proportionate interest of each other shareholder as a similarly proportionate interest in such amounts; and, by breaking up the legal transfer from himself to the corporation into parts, he would so break up the computation of the gift tax as to escape tax entirely.
There is nothing in the record to justify any aspersion upon the petitioner's motive or good faith, and the case is not to be considered except as a legal question of the effect of the gift tax statute upon the facts stipulated.
We see no reason in the language of the statute for holding that the petitioner's voluntary contribution to the corporation for which he received nothing, albeit the value of his shares was pro tanto enhanced, may be*1053 regarded as other than a gift. ; ; affd., ; ; certiorari denied, ; . This is no less so because in the corporation's accounting parlance the gift *123 may have been regarded as paid-in surplus, ;, or because the petitioner and the other shareholders derived benefit in the extent to which the augmentation of the corporation assets is reflected in the value of their shares, ;
The corporation is, as the statute expressly says, a "person", section 801(a)(1), Revenue Act of 1934; section 1111(a)(1), Revenue Act of 1932, and a taxpayer. *1054 As such it is in law separate from the petitioner, . It is the donee of petitioner's contributions and the owner thereof in its own right. If it sells the property, the resulting gain or loss comes to it and not to its shareholders, The measure thereof is calculable upon the basis which would have been applicable to the donor, section 113(a)(8), Revenue Act of 1932; ;; see Senate Finance Committee Report No. 665, p. 27, 72d Cong., 1st sess. If the donor remains a shareholder of the corporation, his death will result in the testamentary transfer not of the corporation's property but of the petitioner's shares in the corporation, which, as gross estate, will measure the estate tax. An intervening gratuitous transfer in trust of such shares and a consequent gift tax will have its statutory reflection in the decedent's estate tax, section 402, Revenue Act of 1932; *1055 ; affd., . The gift tax and the estate tax are separately imposed on different occasions, and it is no objection that they both impinge upon the same taxpayer, or that the measure of each is as a matter of law to some degree derived from the same economic value. This is not double taxation; but even it it were, it would still not be invalid, ;
Because the petitioner is now required to pay a gift tax upon the transfer of property to the corporation, his estate tax upon the testamentary transfer of the shares is not necessarily to be reduced to reflect the gift tax thus paid. Neither the statute nor the legislative reports indicate that Congress intended such a nicety of mathematical calculation in the coordination of the two taxes.
The gift by the petitioner to the corporation does not require a $5,000 exclusion for each of the other shareholders who by enhancement in value of their shares feel its benefit. Such indirect benefit is not a gift, direct or indirect, such as the statute, *1056 Revenue Act of 1932, section 501(b), contemplates. As to gratuitous transfers in trust, the $5,000 exclusion has now been construed as applying separately *124 to each beneficiary rather than, as it had formerly been held, to the trust itself, ; ; ; ; (on review, C.C.A., 8th Cir.). But the very doubt which has affected the question as to trusts strengthens the conclusion that a gift to a corporation may not be treated as a group of gifts to its shareholders.
In our opinion, the Commissioner correctly held that the transfers in each year to the corporation were gifts to it which were subject to a single exclusion each year of $5,000, and were subject to the gift tax upon the total amount in excess of the composite $50,000 exemption. The determination is sustained.
Reviewed by the Board.
Decision will be entered for the respondent.